Articles: Marketing & Sales

Compensation Plans

Jack Lintol is the Chief Operating Officer for Auto Credit Express (ACE), Sub Prime experts who help dealers satisfy the need of Sub Prime consumers through their Training, Traffic and Technology products. ACE's senior management team has delivered tens of thousand of Sub Prime deals since the early 1990's. ACE has helped dealers across the country get into the Sub Prime business or improve their existing Sub Prime business ultimately increasing car sales and profits. Jack can be reached at (248) 370-6658.

As the old saying goes, "The reward for a job well done in the car business is a minor adjustment in pay". And it's usually not an upward adjustment. How many of us have asked the question "why did you leave that dealership?" only to hear, "because 'they' cut my pay." I have heard it more times than I would like to admit. As a matter of fact, it troubles me that every dealer gets thrown into this negative "your pay will be cut if you start making too much money" bucket. There are so many dealers out there that have great pay plans and understand that if their employees are making a lot of money they are too. These same dealers also realize that there is more to attracting and retaining great employees than just pay alone. I know it sounds altruistic, but it's true.

Another common theme I hear in the car business and other businesses is that the salesperson "exploits" the pay plan and makes a ton of money. Well, isn't that their job? Aren't they supposed to do what they are incentivized to do? Who set up the pay plan, anyway? Did that person really take the time to understand what they wanted that salesperson or manager to do, and whether or not their pay plan would motivate the person to actually do it? It is usually the people that don't spend the time developing well thought out, and long term pay plans, that you hear complaining that the salesperson "exploited" the pay plan. Within three months of seeing a new pay plan, aggressive salespeople figure our where to focus their efforts to maximize their pay. The manager that set up the plan, not the sales person, is truly to blame if someone's pay increases and the expected results do not. The best dealers and managers know this.

Great dealers have one thing in common; they understand that their best asset is their people. So it stands to reason that they will take care of their employees. The keys to attracting and retaining the best employees include many things beyond a solid pay plan. I want to take a look at all the other items before we address compensation.

• Know who you are and what you stand for. What does your dealership stand for? Will someone want to work at your dealership? Does everyone who works for you understand who you are and what you are trying to accomplish? We have defined this in our business and it has helped us when recruiting people to ensure candidates will fit into the organization. Knowing who we are also helps us run our business and guide our decision making process. Here are just a few items you need to know to help define this:
  
  
  • Core Purpose - why does your organization exist, besides to make money?
  • Core Values - a set of small tenets or guiding principles. These already exist and need to be discovered, not set. Core values are 100 year items that will not change in response to market conditions.
  • Mission - a simple statement that describes the business you are in.
  • Strategic Anchors - the unique ways that you achieve your mission.
  • BHAG - "Big Hairy Audacious Goal" - a crisp, compelling, easy to understand 10+ year objective.
  All of these items will allow you to be more effective in attracting, recruiting, and keeping the best people. Knowing who you are and what you stand for makes it much easier to operate your business. It allows everyone to reference core values when making decisions, ensures the business is being operated consistently with the mission and strategic anchors, and confirms that the dealership is on the road to its BHAG. Communication around these items should be daily and they should become the spoken language in your dealership.
  
  
• Create a great environment. What is the first impression anyone has when walking into your dealership? This can tie into your core values. One of our core values is: Have energy and the ability to energize others. This is a very bold statement, but you can feel it when you walk in our building. Will the best of the best want to work at your dealership? I can't tell you the dramatic differences I have seen across the country in dealership environments - some of the best run and most profitable dealers are high energy and fast paced with people that are highly motivated and love coming in every day.
• Opportunity - do your salespeople have the opportunity to sell a lot of cars and move up within the dealership? How much are you investing to get traffic into the store or to make the phone ring? Do you invest in the salespeople and manager's skills so they know how to prospect on their own as well as handle the traffic you pay for? Do you have a process at the dealership that is tried, tested and continually improved?
• Training - do your people get training? Are managers or outside companies providing training to keep your people sharp and eliminate any excuses they might have about how to handle various situations? If you are not willing to invest in them, will they really invest a full day for you? Training done the right way pays off in spades. I would rather train people and lose some than keep all the ones that have not been trained.
• Accountability - ensure that everyone knows where they are, and everyone else is, for the month. Put it in neon lights. Make sure everyone's numbers are discussed daily.

Now to the pay plans. The keys to setting up a long term, effective pay plan are as follows:

• Simple - you want the salesperson or manager to be able to easily calculate or at least approximate where they are for the month.
• Transparent - don't hide anything - be straight. Eliminate the pack. Instead, just lower the percentage.
• Strategic - ensure that the plan will accomplish your monthly, quarterly, yearly and Big Hairy Audacious Goals. You have to figure out what you want your people to do and then ensure that the compensation plan will motivate their behavior to achieve those goals.
• Let people make money - If the salesperson or manager is making a lot of money with the right pay plan, then you should be too. If the respective job requires some time to get up to speed and there needs to be a ramp up period, pay them a higher commission rate in the early months and work them down to the normal commission rate over a specific period of time.
• Example: Here is an actual pay plan from a new car franchise that focuses on sub prime:
  
  

  Total Gross (Front and Back)	Commission %
  Up to $50,000	15.0%
  Greater than $50,000	17.5% (a)
  (a) Commission % back to dollar one Note: No Pack

  
  

All of this is easy to say but harder to implement. It is impossible to implement until you take the first step. If you take the time and make the investment to make your dealership a better place to work, with a competitive upfront pay plan, you will have better results, lower turnover, and less need to "pencil" your staff. Take the time to ensure the pay plan is as timeless as possible. Set it for a year. I have learned a lot of difficult lessons not only from mistakes I have made, but also from watching others make mistakes in operating businesses and setting pay plans. I hope you, in turn, have learned something from this. Please feel free to call me directly at (248)370-6658 if you would like to go into more depth on any of the above issues.

Have a great month.

Published in the Special Finance Insider
June Issue 2008